Our Market Update Jan 5,2015

Market update January 5, 2015

A number of reports pertinent to our real estate market have come out in the last little while, so we're sending this to our past and present clients to keep them current on the thoughts and conditions in the market.

The Real Estate Board of Greater Vancouver has come out with their yearend stats package today stating that the MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver has risen 5.8%, since December 2013, to a value of $638,500. When townhouses and apartments are broken out the increase in detached housing is more pronounced at 8.1%. Below is the HPI Price graph for all Real Estate Board of Greater Vancouver areas combined.

In North Vancouver the detached home market also increased substantially while the apartment and townhouse market, while still rising, have remained relatively flat. The graph below shows the median house price in North Vancouver.

As you can see the median price in detached housing in North Vancouver has had a spectacular shot upwards in the last month of 2014. This ballistic upswing is not present in the HPI Price Index for North Vancouver which only shows a 0.7% rise.

A recent report from ReMax has forecasted an average 3% rise for real estate in Vancouver for 2015, citing that young families and equity downsizers will drive demand across Vancouver with off-shore buyers driving demand in the high end. But in a recent bank of Canada report it stats that the Vancouver housing market could be overvalued by 10-30%. This is quite a contrast. Another negative idea that’s been out there for a while is the possibility of a huge inventory of properties that are being held vacant and not lived in. This negative news sounds pretty bad so let’s take a closer look at each one.

First the idea that there are a huge number of investor owned vacant units that could suddenly be dumped on the market. David Baxter from Urban Land Futures came out with a report saying that based on the Census data this is not the case. He concludes his report saying “There are significant housing issues in this region – the levels of occupancy by foreign and/or temporary residents and level of unoccupied units are not among them.” And this is one of the graphs he uses to prove his point:

Note that this graph includes all unoccupied apartments, not just those owned by foreigners. Also, this report is based on 2011 Census data, so what about today? Well the CMHC just came out with a report supporting this position. The CMHC report surveyed property managers and came up with a foreign ownership rate in Vancouver of only 2.3%. Also, previous to this CMHC report, The Urban Land Futures came out with a report this December saying that the demand for housing will continue. About the Vancouver CMA (Census Metropolitan Area) it says, “Over the next 28 years demand for owned units in the Vancouver CMA would outpace that for rented dwellings, both in absolute and relative terms.”

So taken together these reports seem to dispel the anecdotal evidence of a large number of vacant units in the Vancouver housing market. So what is behind the statement from the Bank of Canada that housing could be overvalued by 10-30%? I find it interesting that a number of reports came out at the end of the year saying that the real estate market is overvalued. In 2013, around that same time of year, a study from Deutsche Bank estimated that homes in Canada were valued 60% too high. So perhaps there is some reason for the timing of these reports. But aside from that, the Bank of Canada has some real concerns they are trying to get across to Canadians. One of the biggest concerns is the level of household debt. This chart from Stats Can shows where the level of household debt in the 3rd quarter of the year:

The concerning part of this graph is that, “households held roughly $1.63 of credit market debt for every dollar of disposable income in the third quarter.” While the debt service ratio remains low, the risk is that an economic shock could cause the debt service ratio to rise and force households to liquidate real estate assets. However, in the Bank of Canada’s Financial System Review report this risk is described as having a low probability of happening in spite of having a very high severity of impact (if it does happen). So I think that the Bank of Canada is giving these warnings and dire stats in an effort to reign in this debt to income ratio. I also feel that the timing of these reports and warnings is not entirely coincidental, right before Christmas as people are spending a lot on consumer goods.

So in conclusion it would appear that the Vancouver market is still healthy. But for those who are overextended it’s probably good to heed the Bank of Canada’s warnings. As a part of our service to clients we can help plan real estate goals and look at the financial side of the decision to buy/sell. We also have a number of professionals we can refer clients to for services including debt management, investments, and estate planning. This is just a brief overview of the market; please call us for a more detailed insight and how it may apply to your specific situation.

Have a happy and healthy 2015!

Terrence and Craig

PS – Check out this Dutch idea to show a house using a roller coaster, so funny: